The focus of this blog is on the wonders of government-run health-care everywhere but I also note the damage done to private medicine by a legal system that supports predatory litigation.

The long-established socialized medicine systems in Britain and Australia are a particularly relevant warning about where such systems end up.

Posts by John J. Ray (M.A.; Ph.D.)

Wednesday, August 05, 2009

Britain's NHS facing a bleak future

For the NHS the future looks far from rosy. While politicians promise funding increases above inflation from 2011 onwards, it is hard to see, firstly, where the money will be found, and how what is scraped together will cover even the most basic increases in demand.

Joint analysis by The King's Fund and researchers from the Institute for Fiscal Studies of the future for NHS funding show that even a small real rise in funding each year from 2011 onwards will be difficult to achieve. A real rise of 2 per cent a year for the NHS could mean real cuts in all other departments totalling 14 per cent by 2014.

Adding to these pressures is the fact that the NHS will face increasing demand for its services. Simply "standing still" and meeting the needs of a growing and ageing population requires a real increase in funding each year of 1.2 per cent. To go further and increase the quality of services will take an additional 3 or 4 per cent increase each year. Despite the best efforts of any government, this is going to leave a gap in funding.

Filling this gap with deeper cuts in other parts of government or higher tax rises is unlikely. Instead, the NHS will need to increase its productivity. But the step change required is large. Over the past decade NHS productivity has fallen by just over 4 per cent. Filling the funding gap will require productivity increases each year up to 2017 of between 4 and 8 per cent.

Cutting the set prices hospitals are paid for services will increase the incentive to be productive. But providing more care for less money will mean real action to cut costs and "rationalise" local services. This could lead to changes often unpopular with patients such as small units being closed and services concentrated in specialist hospitals.

Such reforms can improve quality and levels of care by concentrating professional expertise in centres of excellence, but tightening the screw too much too quickly could lead to poor decisions - not just cutting costs, but quality, too.

There are difficult times ahead, but the public and politicians will need to be prepared to support the NHS as it grapples with these tough decisions in the interests of patients.

Billions wasted and lives needlessly lost in Australia's public health care system

KEVIN Rudd's hand-picked health reform adviser has warned that Australia is wasting much of the $94 billion it spends each year on health services and will not be able to afford even the current, flawed system without major reforms...

The commission, set up early last year to help redesign Australia's health system, will warn that healthcare services, already under strain, will be swamped by the rising tide of chronic illness, an ageing population and costly new health technologies.

The commission urges governments to build stand-alone elective surgery hospitals and set new performance benchmarks requiring most operations to be performed within three months and emergency patients to get treatment within minutes. It also urges the creation of a Denticare scheme, paid for by a 0.75 of a percentage point increase in the Mecicare levy.

The commission's final report cites figures indicating Australians are forgoing two years of life because of waste and duplication in the health system. Errors are also taking a human toll. "The number of adverse events each year (is) equivalent to 13 jumbo jets crashing and killing all 350 passengers on board," it says.

Australia could save $1bn in healthcare costs by preventing just half of these mistakes. Better care in the community, through general practice, community health centres and other frontline services, would also eliminate the need for 700,000 hospital admissions a year.

The current health system is "unlikely to be sustainable without reform", the 10-member commission argues.

In "The Top Ten Myths of American Health Care," Sally Pipes points out that while there are some Americans who simply can't afford health insurance, many millions who can afford insurance choose not to buy it and "very likely would not want to be 'rescued' by mandatory socialized medicine."

In the first place, the 47 million number is grossly inflated. The Congressional Budget Office survey generating it included those who were uninsured for any part of a year, despite the fact that almost half of these remain uninsured for an average of only four months.

Some 38 percent of this 47 million -- almost 18 million -- make more than $50,000 a year, and 10 million of them make more than $75,000. Of all the uninsured groups, this is the only one that is growing, because in a still-free country, they've made their own decision not to buy expensive insurance while (most of them) are young and healthy. The Census Bureau also reports that more than 10 million of the uninsured are not American citizens.

But how about the very poor? Well, it turns out that the Democrats are shedding crocodile tears here, as well. Pipes explains that "as many as 14 million of the 45.7 million uninsured -- poor and low-income Americans -- are fully eligible for generous government assistance programs like Medicare, Medicaid, and SCHIP." But "they're just not enrolling in the programs."

So while Obama tells us that almost 8 million children lack health insurance, he doesn't disclose that 5 million of them only lack insurance because they haven't been enrolled in the available programs. Not only would this fact undermine the urgency of his appeal; it illustrates that even under his "universal access" plan, not everyone would acquire coverage anyway. Indeed, the CBO has estimated that some 17 million would remain uninsured if the Democrats' plan were implemented.

Yes, there are people who fall through the cracks (Pipes' words) -- mostly those who earn less than $50,000 per year but too much to qualify for government help. When it's all said and done, there are probably about 8 million of these "chronically uninsured," who really can't afford insurance and don't qualify for help -- though they are able to receive emergency room care. And many of these 8 million would be better able to afford coverage if government regulations and mandates hadn't driven up the costs so much.

But how urgent do you suppose Obama's call for universal coverage would sound if he were to come clean with these figures? The truth is he couldn't get to first base if he used the 8 million figure instead of 47 million.

But there's another important factor to keep separate, as well. There's a major difference between a lack of insurance and a lack of care. Under Obama's socialized medicine scheme, not only would universal insurance coverage be impossible to achieve but also access to medical care and the scope of care would be dramatically reduced, as it has been in every socialized system in the world and in our own government health programs.

It is axiomatic that price controls result in rationing and waiting lines, and many of the very people Obama is using to shame us into supporting socialized medicine would suffer drastic reductions in the quantity, scope and quality of care. Hit hardest would be the elderly. Big Brother would make the decision as to scope and even quality of care. Chilling evidence for this is already in the draft bills and in Obama's unwitting admissions to that effect.

It is true that our health care costs are very high and rising at alarming rates, but not for the reasons Obama wants you to believe. Rather, it's because we Americans demand greater quality care and medications (and we get them), which are expensive, and because of already excessive government interference with free market forces.

It's no wonder costs are skyrocketing when government-mandated coverage requirements choke competition and prevent more affordable plans and when 60 percent of Americans have employer-provided health insurance and don't directly pay for their care, which necessarily increases demand (and prices).

The solution lies in unleashing market forces (more on this later), not the tyrannical hand of government.

As the healthcare debate rages on, there is one reality that even the proponents of this hostile takeover of healthcare by government cannot ignore -- and that is money. The government simply does not have the money for a new, expansive, public healthcare plan. The country is in a deep recession that will deepen even further with the coming collapse of the commercial real estate market. The last thing we need is for government to increase and expand taxes to pay for another damaging, wasteful program. Foreigners are becoming less enthusiastic about buying our debt, and creating another open-ended welfare program when we cannot pay for what is already in place, will not help. Champions of socialized medicine want to tax the rich, tax businesses that already cannot afford to provide health plans to employees, and tax people who don’t want to participate in the government’s scheme by buying an approved healthcare plan. Presumably, all these taxes are to induce compliance. This is not freedom, nor will it improve healthcare.

There are limits to how much government can tax before it kills the host. Even worse, when government attempts to subsidize prices, it has the net effect of inflating them instead. The economic reality is that you cannot distort natural market pressures without unintended consequences. Market forces would drive prices down. Government meddling negates these pressures, adds regulatory compliance costs and layers of bureaucracy, and in the end, drives prices up.

The non-partisan CBO estimates that the healthcare plan will cost almost a trillion dollars over the next ten years. But government crystal balls always massively underestimate costs. It is not hard to imagine the final cost being two or three times the estimates, even though the estimates are bad enough.

It is still surreal that in a free country we are talking only about HOW government should fix healthcare, rather than WHY government should fix healthcare. This should be between doctors and patients. But this has been the discussion since the 60’s and the inception of Medicare and Medicaid, when government first began intervening to keep costs down and make sure everyone had access. The result of Medicaid/Medicare price controls and regulatory burden has been to drive more doctors out of the system -- making it more difficult for the poor and the elderly to receive quality care! Seemingly, there are no failed government programs, only underfunded ones. If we refuse to acknowledge common sense economics, the prescription will always be the same: more government.

Make no mistake, government control and micromanagement of healthcare will hurt, not help healthcare in this country. However, if for a moment, we allowed the assumption that it really would accomplish all they claim, paying for it would still plunge the country into poverty. This solves nothing. The government, like any household struggling with bills to pay, should prioritize its budget. If the administration is serious about supporting healthcare without contributing to our skyrocketing deficits, they should fulfill promises to reduce our overseas commitments and use some of those savings to take care of Americans at home instead of killing foreigners abroad.

The leadership in Washington persists in a fantasy world of unlimited money to spend on unlimited programs and wars to garner unlimited control. But there is a fast-approaching limit to our ability to borrow, steal, and print. Acknowledging this reality is not mean-spirited or cruel. On the contrary, it could be the only thing that saves us from complete and total economic meltdown.

Since its inception over four decades ago, New York State's Medicaid program has expanded inexorably. Today it is the nation's most expensive by far, projected to spend a mind-boggling $49.2 billion in 2010--roughly 14 percent of the nation's total Medicaid budget, though the state holds just 7 percent of the nation's population. The program's enormous size has helped saddle New York taxpayers with some of the highest state and local taxes in the United States, killing jobs and siphoning support from other vital public needs.

As Richard Daines, the commissioner of the state's Department of Health, put it in early 2009, when lawmakers were facing a $15 billion budget deficit: "With Medicaid making up 20 percent of the total state budget, it's impossible to exclude Medicaid funding from the deficit-reduction measures." It may be impossible to exclude it--and it's actually closer to one-third than one-fifth of the budget--but Albany is trying hard to do so. In the 2009-10 budget, Governor David Paterson claimed $2.3 billion in Medicaid "savings"--but much of these were actually revenues from new taxes and fees, including over $700 million in new taxes on privately purchased health insurance and $400 million in delayed Medicaid payments. Actual savings were much smaller than advertised: $545 million. Further, the Medicaid budget is critically dependent on federal stimulus money--$1.3 billion of it in 2008-09, and $3.7 billion in 2009-10. If you include those funds, state Medicaid spending has i! ncreased by just under 11 percent.

Though the governor has wrung some minor concessions from the powerful special interests that depend on Medicaid, far, far more will be needed to bring costs under control. It is no exaggeration to say that New York's fiscal well-being depends on it.

Created in 1965 as part of President Johnson's Great Society, Medicaid is a joint federal-state program that provides health care to the poor. The feds split the Medicaid bill with the states, paying 50 percent of the program's cost in richer states like New York and a larger fraction in poorer ones. Spending is open-ended: the more money states spend on Medicaid, the more money Washington sends them as its match. Crucially, though federal regulators set minimum requirements for who's eligible and what services they receive, states can offer a range of additional services (prescription drugs, say), for which the feds nevertheless have to chip in.

These federal dollars are a huge incentive for states to expand their health-care initiatives. And when Medicaid was new, nobody extended his hand to the federal till more enthusiastically than New York governor Nelson Rockefeller, who wanted his state to offer the most lavish Medicaid benefits in the country. Rocky also asked New York cities and counties to contribute half of the program's nonfederal costs--meaning that state lawmakers could drive up spending using federal and local dollars without assuming the full brunt of the fiscal or political cost. Medicaid spending immediately shot far beyond even Rockefeller's grandiose expectations. In 1966, his administration estimated that annual Medicaid costs would be $80 million; by 1969, they had exploded to $330 million.

Medicaid's perverse funding formula is just one reason for its enormous costs. The other is politics. Albany legislators quickly realized that increased Medicaid spending could be a powerful tool to get themselves reelected, since various constituencies emerged that benefited directly from it, including hospitals, nursing homes, and the mighty health-care union SEIU 1199. Savvy policymakers, noted former New York State comptroller Ned Regan, began using spending to win "gratitude and campaign contributions from health care providers and union organizations, and the support and votes from Medicaid clients and those who work in the health care system."

Medicaid thus came to dictate spending priorities in Albany. The most recent (and glaring) example is the career of Republican governor George Pataki, who arrived in office in 1995 railing against Medicaid overspending but then blasted it even higher by cutting politically expedient deals. In 1999, Pataki added billions to Medicaid with funds from cigarette taxes and the states' share of revenues from the national Master Tobacco Settlement. The next year, he signed the Health Care Reform Act, which used Medicaid dollars to offer a new plan, Family Health Plus, that extended coverage to adults who earned too much to qualify for traditional Medicaid. And in 2002, to help cement his reelection bid, Pataki helped funnel an additional $1.8 billion in Medicaid funds into raises for SEIU 1199's private-sector home-care workers; a few months after the bill passed, the union endorsed Pataki in the general election. Pataki won, but New York paid a steep price: by the time he left o! ffice in 2006, Medicaid spending had nearly doubled since 1995.

Federal matching dollars and corrupt state politics, then, help explain the multitude of optional services that Medicaid offers in New York State, the generous coverage that it extends, and the enormous amounts that get spent. According to 2006 data from the Kaiser Family Foundation, New York spends about 73 percent more per Medicaid enrollee than the national average--$7,927 versus $4,575. The vast funding devoted to Medicaid allows it to cover about one out of every five New Yorkers.

Fraud has become endemic, making the budget drain still worse. In a 2005 expose, the New York Times reported on a Brooklyn dentist who billed the state for nearly 1,000 procedures in a single day; expensive ambulettes ferrying healthy Medicaid recipients around New York City at public expense; and over $1 billion in "questionable" payments for speech therapy for low-income New Yorkers. The Medicaid program was "so huge, so complex and so lightly policed," the Times wrote, "that it is easily exploited," with billions likely stolen annually. (A 2007 FBI report estimates that 3 percent to 10 percent of all health-care expenditures nationally are lost to swindlers.) And that's just outright fraud. One former state Medicaid investigator suggested to the Times that 20 percent to 30 percent of New York's program might be lost to noncriminal waste or abuse--tens of billions of dollars misspent annually.

With Medicaid expenditures rising so fast, New York policymakers at last began to act over the last several years, though intermittently and with minor success. To crack down on fraud, for example, the legislature created an independent office in 2006, the Medicaid Inspector General, which has since won praise from the federal government for its undercover sting operations to catch cheaters. Last year, according to the Inspector General, the state recovered more than $550 million--just a fraction of the billions lost to fraud, but a start.

To try to reduce the billions of dollars that Medicaid was pouring into New York's bloated and expensive hospital and nursing-home industries, in 2005 Pataki and the state legislature created the Berger Commission, chartered with making recommendations for restructuring and closing unneeded hospitals and nursing homes. (The state controls these institutions by issuing the certificates that they need to operate legally.) As the commission's final report noted, "empty beds, wards, and buildings that are unused and unstaffed have fixed costs that must be paid," which hospitals pass along to Medicaid by admitting more patients, keeping them longer, or running more tests and procedures than are medically necessary. Initially, the commission suggested that the state might have as many as 20,000 excess hospital beds, but its final recommendations--accepted by the state--were modest. Only nine hospitals have closed, reducing the state's bed count by just 1,700, with another 1,700! beds slated for elimination by next year.

Governors Spitzer and Paterson have pursued another strategy for cutting costs: encouraging preventive and primary-care services, hoping that they will help patients with chronic diseases like diabetes manage their illnesses better and thus lower Medicaid expenditures. The 2009-10 budget reduces spending on expensive inpatient hospital treatment by $225 million annually, with some of the money saved going to community clinics and doctors who specialize in primary care. To ease opposition from hospitals, the state has set aside about $150 million for them--and it's worth remembering that in the past, hospitals have managed to transform such temporary subsidies into permanent new revenue streams. Still, over the long term, New York may be able to reduce its dependence on costly hospital care.

Unfortunately, Paterson is also looking to expand Medicaid enrollments. By 2013, the administration projects that one out of every four state residents will be in the program, a growth of 1.1 million enrollees. Busting the budget still more, the governor has also asked the Obama administration for permission to raise the maximum eligible income for Family Health Plus. (Through another Medicaid-funded program, Child Health Plus, New York already insures children in families with incomes up to 400 percent of the poverty level--about $80,000 a year for a family of four.)

New York's addiction to Medicaid spending won't change overnight, but there's much more reformers can do to make the program fiscally sustainable. One step would be to freeze cities' and counties' contribution to new Medicaid costs. Beginning in 2006, the state capped that contribution at an approximately 3 percent annual growth rate, after counties protested skyrocketing property-tax hikes. But the built-in increase still gives the state too much leeway to increase spending. A freeze would make state lawmakers feel more political pain for every dollar they spent.

Transparency is another key, as the work of the Medicaid Inspector General has shown. In one demonstration project, Monroe County hired Salient Corporation to use data-mining technology to identify fraud, waste, and abuse in its Medicaid expenditures. The findings were eye-opening, including 73 providers who "paid for claims for dates after client was deceased"; dozens of cases of Viagra abuse (charging Medicaid for the drugs and then selling them); and ten Medicaid recipients with a total of 800 emergency-room claims in one year, including 55 for headaches. Data mining should be extended statewide and opened to researchers and the public so that policymakers and taxpayers can see where (and how) their dollars are spent.

Many states, including New York, have been removing healthy adults and children from traditional "fee-for-service" Medicaid, which pays for their health care directly, and instead paying managed-care plans like HMOs to cover them. These managed-care plans receive a prepaid sum per enrollee, typically focus on primary care and prevention, and have been shown to reduce costs compared with fee-for-service. New York should do the same with its highest-cost patients--the disabled and elderly--offering lump-sum payments to insurers that will cover them, and then holding those insurers responsible for improving outcomes and containing costs.

One more way to reduce costs involves affluent elderly New Yorkers who intentionally divest themselves of assets, giving their money away to family members so that they can vqualify for Medicaid nursing-home coverage. Administrators should check people's financial history as far back as 60 months, instead of the current 36, to make sure that they haven't engaged in this fraudulent practice. Another way to rein it in: requiring people to contribute available assets to pay for their spouses' health care.

Finally, New York's dysfunctional private health-insurance market drives people away from buying insurance and into the arms of Medicaid. New York could take various steps to make private coverage affordable again (see sidebar, page 51), and with more people buying it, scarce state funds could be reserved for the poorest and sickest New Yorkers.

It's difficult to predict how much these measures might ultimately save, especially given the Medicaid-dependent special interests' ability to game the system. But that there's a lot of fat to cut from the program--billions and billions of dollars' worth--is indisputable. If policymakers simply brought New York's per-enrollee costs more in line with those of other states, the savings would be massive. According to a 2007 report by the Empire Center for New York State Policy (a project of the Manhattan Institute), if New York spent at the same level as other states in just four categories of service for the elderly--hospitals, nursing homes, home health care, and personal care--it would save nearly $5 billion annually.

Ultimately, the most perverse incentives in the Medicaid program result from the fact that state policymakers can continue to draw down federal dollars with every state expenditure. Ideally, the federal government would give each state a set amount of Medicaid funding--a block grant--and then get out of the way, giving states full responsibility for spending those dollars effectively. The Obama administration is unlikely to agree to any such move. But there's lots New York can do right now to keep out-of-control Medicaid expenditures from clouding its future.

Background

Postings from Brisbane, Australia by John Ray (M.A.; Ph.D.) -- former member of the Australia-Soviet Friendship Society, former anarcho-capitalist and former member of the British Conservative party.

This blog gives a lot of attention to events in Australia and Britain -- places where there already exist systems similar to the one most likely to befall the USA if the Democrats get their way -- "Free" medical care supposedly available to all through government hospitals but with a competing private sector as well. The Canadian system is considered too Soviet to provide a likely model for the USA

TERMINOLOGY: Many of my posts concern the very instructive state of socialized medicine in Australia. Like the USA, Germany and India, Australia has a system of State governments which have substantial independence from the central (Federal) government and it is they who are mainly responsible for "free" health services. It may therefore be useful to some for me to note the standard abbreviations for the States concerned: QLD (Queensland), NSW (New South Wales), WA (Western Australia), VIC (Victoria), TAS (Tasmania), SA (South Australia).

For greatest efficiency, lowest cost and maximum choice, ALL hospitals and health insurance schemes should be privately owned and run -- with government-paid vouchers for the very poor and minimal regulation. Both Australia and Sweden have large private sector health systems with government reimbursement for privately-provided services so can a purely private system with some level of government reimbursement or insurance for the poor be so hard to do?

Conservatives do NOT object to helping the poor. Government welfare legislation in aid of the poor was in fact first introduced by conservatives -- Bismarck and Disraeli in the 19th century. What conservatives want is for the help to be delivered in a sane manner. And anyone who thinks that government bureaucracies can run hospitals well is completely out of touch with reality.

One of the oldest "free" public hospital systems in the world is that in the Australian State where I live: Queensland. It dates from 1944 (Britain's NHS began in 1948). So its advanced state of decay reveals well where the slow cancer of bureaucracy ends up. It now has three "administrative" employees for every medical employee. All those clerks are really good at curing people, I guess! Frequent bulletins on the flailing but ineffectual attempts to "fix" the system will appear here -- as well as bulletins on the dreadful things it does to patients and the long waits they endure.

On all my blogs, I express my view of what is important primarily by the readings that I select for posting. I do however on occasions add personal comments in italicized form at the beginning of an article.

I am rather pleased to report that I am a lifelong conservative. Out of intellectual curiosity, I did in my youth join organizations from right across the political spectrum so I am certainly not closed-minded and am very familiar with the full spectrum of political thinking. Nonetheless, I did not have to undergo the lurch from Left to Right that so many people undergo. At age 13 I used my pocket-money to subscribe to the "Reader's Digest" -- the main conservative organ available in small town Australia of the 1950s. I have learnt much since but am pleased and amused to note that history has since confirmed most of what I thought at that early age.

I imagine that the the RD is still sending mailouts to my 1950s address!

NOTE: The archives provided by blogspot below are rather inconvenient. They break each month up into small bits. If you want to scan whole months at a time, the backup archives will suit better. See here or here